[Click eStock] "HMM, Peak-Out Expected After 2Q Peak"... Investment Rating and Target Price Lowered

[Asia Economy Reporter Lee Jung-yoon] Daishin Securities downgraded its investment opinion on HMM from "Buy" to "Market Perform" and lowered the target price from 42,000 KRW to 30,000 KRW on the 23rd, anticipating a peak-out after the second quarter earnings this year.

HMM's second-quarter revenue is expected to reach 5.3955 trillion KRW, an 85.6% increase year-on-year, and operating profit is projected at 3.4656 trillion KRW, a 149.5% rise, significantly exceeding market expectations. According to French maritime research firm Alphaliner, container volume in April recorded 1.301 million TEU (1 TEU = one 20-foot container) on the Europe route, down 8.5% year-on-year, while the Americas route increased by 2.3% to 1.667 million TEU. The combined volume for the Americas and Europe routes was 2.968 million TEU, a 2.7% decrease.

Despite these strong second-quarter results, Daishin Securities downgraded its investment opinion and target price due to uncertainty in container demand forecasts for the second half of the year amid global economic slowdown and downward pressure. Furthermore, the spot freight rate is expected to continue declining, signaling that profits will enter a contraction phase after peaking in the second quarter. Even with the third quarter being the peak season, freight rate recovery is expected to be difficult due to the global economic slowdown and supply concerns in 2023.

Yang Ji-hwan, a researcher at Daishin Securities, explained, "The average SCFI (Shanghai Containerized Freight Index) in the second quarter is currently at 4,211 points, with freight rates on the Europe route declining faster than those on the Americas route." He added, "In the second quarter, the SCFI for the Europe route was $5,978/TEU, and for the US West Coast route, the SCFI was $7,805/FEU (12-meter container)." He further stated, "Despite the decline in spot freight rates, HMM's second-quarter ARPT (Average Revenue per TEU) is estimated to increase by 3% from the previous quarter to $4,336/TEU, influenced by the rise in SC (long-term contract) freight rates."